Member News

New Non-Traded REITs Enter Dry Spell

According to The DI Wire, Cantor Fitzgerald is launching a $1 billion non-traded REIT called Rodin Global Property Trust Inc. Rodin intends to focus investments to single-tenant, net-leased commercial properties located in the US, the UK and other countries in Europe.

The firm is offering three classes of common stock: class A, class T and class I shares. The Blackstone Group also launched its first non-traded REIT, Blackstone Real Estate Income Trust, back in August. The Wall Street Journal> reports that Blackstone is working to improve the traditional model and will roll out four classes of shares, each with a different fee structure. Both REITs have a minimum permitted investment requirement of $2,500.

Rodin Global Property Trust and Blackstone Real Estate Income Trust are entering the non-listed REIT sector while it is experiencing substantial headwinds. This segment of the market has been criticized for high fees, vague disclosures, and low returns. The flow of capital to the sector has been scarce for the past several years. A fraud scandal involving Nicholas Schorsch of American Realty Capital in 2014 heightened public distrust in non-traded REITs, and thus the inflow of capital has diminished since then. Additionally, new regulations have been enacted that reduce fundraising even further. In 2015 and 2016, new regulations became effective that made the sale of high-commission products considerably more difficult to close. According to the industry’s fundraising peaked at $19.6 billion in 2013. Levels for 2014 and 2015 fundraising sharply declined to $15.6 billion and $10.0 billion, respectively. Q1 2016 sales from public program sponsors came in at $2 billion, down 55% from $4.4 billion in Q1 2015.

While non-traded REITs comprise only a small percentage of the REIT universe, a large portion of the total transaction volume can be credited to their capital flow. As the industry’s efforts towards transparency create pressure to lower the now-disclosed fees, costs and expenses, non-listed REITs are starting to regain some favor from investors. With better-prepared players like Rodin Global Property Trust and Blackstone Real Estate Income Trust entering the market, the sector may be moving closer to the end of this fundraising drought.

Compliments of Trepp – a member of the EACCNY